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This page will detail trading tax rules, laws and implications. It will break down the tax categories you could fall into. It will discuss asset specific taxes, before concluding with top tax tips for the savvy day trader.
Day trading tax rules in Canada are on the whole relatively fair. Once you have identified which of the brackets detailed below your trading activity falls into, you are required to pay taxes on your generated income by the end of the tax year December 31st.
However, late and non-payments can result in serious consequences. Best case scenario — you have to repay the money. Worst case scenario — You are pursued in the criminal courts and face up to five years in jail, as stated in the Income Tax Act or the Excise Tax Act.
So, despite taxes on day trading in Canada not always being straightforward, the ramifications of not meeting your obligations are not worth the risk. Taxes on trading in Canada can be split into two distinct brackets. The first falls under the capital gains tax regime. The second and most applicable to day traders is in regard to business income.
If your intraday profits do qualify as capital gains you will need to look to schedule 3. This totals all the income sources eligible for capital gains and losses. It then takes half this amount for entry on line of your federal tax return. However, any losses you incur can only be offset against other capital gains.
Any other sources of income are off the cards. This also means that trading fees are not tax deductible under these rules. Despite the advantageous tax rate, there are important Canadian rules around taxes to be aware of.
This stipulates that if an investor, a spouse, or a company they control buys back an asset or similar asset within days of selling it, they cannot claim the capital loss for tax purposes. This rule trips up many traders each year, costing a considerable amount in taxes. For further clarification and other Canadian rules on taxes to be aware of, see our rules page. As a day trader, you look to close out any positions by the end of the trading day.
You are concerned with making profits on small price movements across a high number of trades. Because your primary motivation is to generate profit, you must report your earnings as business income. This income is then fully taxable at your marginal rate. However, you also have a graphic design business.
You can offset your trading losses against the revenue generated from your graphic design business. Hence, significantly reducing your total tax liability.
Claiming Expenses — You can also claim expenses related to your trading activities. In order to claim any day trader tax deductions in Canada though, you must have receipts for all the items declared on your return. The Canada Revenue Agency CRA will not accept these deductions without receipts, and you must also be able to justify how each purchase was related to trading activities. Once you have supporting evidence, you can include anything from educational resources to the purchase of a computer and your monthly internet bill.
However, let me stop you there. You do not get much of a choice in the matter. With the rise in cryptocurrency markets and the complex nature of some instruments, many traders rightly question whether you face different tax obligations in certain markets. Will currency and stock trading taxes in Canada be the same as futures and options trading taxes, for example?
On the whole, the CRA is concerned more with how and why you are trading, than what it is you are buying and selling. Therefore, futures tax reporting will face the same procedure and implications as a tax return on ETFs. Binary options trading tax treatment in Canada takes you into murky waters. The main thing to note is all gains from your options must be reported within the tax year the options expired. To make options trading tax reporting stress-free when December rolls around, you need a detailed spreadsheet with all your trades in.
The benefit of a spreadsheet is that it can automatically calculate your total profit and loss. You can then swiftly refer to your spreadsheet to find the amounts to include on your returns. As the binary options industry is yet to be regulated properly in Canada, keeping a close record of previous activity is essential.
This lack of regulation can make getting information via formal channels a complex procedure. If changes to taxes are introduced it could mean greater profits are left in your pocket at the end of the trading day. Canadian tax laws on currency trading are another topic of interest. The bulletin laid out an important point to bear in mind when filing a tax return on forex income in Canada:. If, on the other hand, it can be determined that a gain or loss on foreign exchange arose as a direct consequence of the purchase or sale of capital assets, this gain or loss is either a capital gain or capital loss, as the case may be.
It was also pointed out that the nature of the foreign exchange gain or loss, is not affected by the length of time between the date the property is acquired or disposed of and the date upon which payment or receipt is effected. So, the forex day trading tax implications in Canada are to a certain extent controllable by you. However, the CRA has pointed out that forex tax reporting must be consistent. So, if you file your profits as business income at the beginning, you cannot later change it to capital gains simply to reap tax benefits.
Most people dread the time-consuming hours where you compile all your paperwork to set about filing your tax return. Even getting it all together to give to an accountant is a painstaking process. Unfortunately, you are solely responsible for declaring taxes on your earnings. Your broker may hand over records, but they are not legally obliged to. That means if you want to make filing your tax returns a hassle-free process, you need to keep a detailed record of all your trading activity.
Identifying and proving your trader tax status is far easier if you have technology on your side. Today there exists intelligent trading tax software that can store all the required information and data on your trades.
Some software can even be linked directly to your brokerage. This can make filling your taxes a straightforward process. It will also leave you more time for analysing the markets and generating profits. For more information on how automated systems can assist you, see our software page. Day trading tax implications in Canada should not deter you from stepping into the trading arena. If you keep a careful record and utilise tax software, filing your returns should be relatively stress-free.
So, give your taxes the same attention and detail as you do your trading. This page is not trying to give you tax advice. Instead, it hopes to bring clarity to the sometimes confusing system that governs Canadian taxes. If you do have any questions or issues, you can contact the CRA, or seek professional tax advice from an accountant. Brokers Reviews 24Option Avatrade Binary. Reviews 24Option Avatrade Binary.